The UK government seems to have found itself in the doldrums of decarbonisation policy. This paralysis is being felt even more acutely as our climate target deadlines creep ever closer.
Climate innovation is at an all-time high. Yet government legislation remains predictably sluggish in how it encourages the uptake and adoption of emission-slashing technologies.
My message to the next British administration would be simple; the government must resist the temptation to simply rely on the technologies that have been available for the last decade.
Instead, we need a mechanism that allows incentives like VAT exemptions, grants and subsidies to apply to the rapidly expanding pool of climate technologies that could help the UK become the green leader it claims to be.
This could come in various forms. A centralised regulatory body that evaluates new technologies, and their VAT exemptions, could be one option. Alternatively, a mechanism could be used to grant quicker access to a range of policy incentives for promising technologies. Such a scheme could give cost relief to the consumer, while the legislation has enough time to catch up.
Either way, decarbonisation is a novel challenge, and novel challenges require novel thinking. As the next government takes the reins, we need innovative policy mechanisms that can speed up the uptake of promising clean technologies, regardless of what that technology is.
On the issue of climate change, the former United States Secretary of the Treasury Hank Paulson said: “It’s not just going to involve electrification and renewables and clean energy… We’re going to need big breakthroughs in technologies that either don’t exist or are not economically practical.”
Climate innovation is moving. UK climate tech funding surpassed £6.54bn in 2022, which is a significant increase from the £3.48bn in 2021. It is a boom rivalled only by the US.
Yet as anyone knows, new products can be expensive. Years of innovation, engineering and development are needed before they even reach the market. Both private-sector innovation and public legislation need to work together to break down this price barrier in order to encourage a rapid public uptake of new, clean technologies.
In a perfect world, the public and private sectors would operate alongside one another like a well-oiled machine. The reality, however, is that as the private sector moves with sometimes jaw-dropping speed and dynamism, the public sector lumbers along many years behind.
The current attempt to regulate AI is a perfect example of this. The same is true of climate tech, where the policy remains out of step with the private sector.
An example of this disconnection is VAT. The reasons for ostrich meat and state-used helicopters retaining their 0% VAT status would evade even the most diligent policymaker.
Meanwhile, electric vehicle chargers, home batteries and new low-carbon heating solutions sit at 20%. The fact that tampons only received their VAT exemptions in 2021 points to a less-than-agile legislative policy-making process.
This only illustrates how we need to fundamentally shift the way that policy is made and updated. There are crucial ways in which the UK government can and should facilitate the transition to net zero.
Climate tech benefits
There are often additional benefits to the uptake of low-carbon technologies. A VAT exemption on thermal storage, home batteries and smart EV chargers could help with the growing need to balance an increasingly renewable-heavy grid. Such measures are essential for keeping the lights on, all the time.
Heat pumps provide one more example. In order to transition Britain’s homes away from gas boilers and the emissions that come with them, the government has issued grants for the installation of heat pumps, with the ambition of installing some 600,000 a year by 2028.
While heat pumps are a far more environmentally friendly alternative to traditional gas boilers, their uptake has been slower than expected, and ultimately it’s unclear if they are the right solution for much more than half of the UK’s building stock.
For homes that are unsuitable for a heat pump, the government currently subsidises biomass boilers instead – some burning manufactured wood pellets, with the significant environmental impacts that come with it.
This is yet another example of how regulation, including grants and VAT exemptions, should encompass all approved low-carbon alternatives, not just the technologies that are hand-picked by the government.
Yet this problem extends beyond heat pumps and batteries. Decarbonising the UK’s homes, which are responsible for approximately 17% of the UK’s greenhouse gas emissions, will require the uptake of everything from smart thermal storage, greater insulation, mechanical ventilation with heat recovery, solar PV, smart controls, solar thermal systems and low-carbon fuels.
We have to adopt these technologies quickly; as implied in Simon Sharpe’s new book “Five Times Faster”, the current rate of green technology uptake is simply not fast enough. This is why the Sustainable Energy Association’s report has called for a technology-agnostic approach to heating, instead of relying on a limited, and increasingly outdated list of options which frankly aren’t suitable for every UK home.
One possible route would be to follow in Biden’s Inflation Reduction Act’s footsteps, which heavily relies on technology-agnostic tax exemptions and subsidies to help consumers adopt climate-friendly products.
We need a mechanism that allows new climate technologies to flourish, without having to rely on traditionally snail-paced policy change. An agile regulatory process, that reviews which technologies should, or shouldn’t receive support, would be a logical place to start.
Johan du Plessis is the CEO of tepeo.